The Cottages Resort and Conference Center, Hilton Head Island
The Cottages Resort and Conference Center, Hilton Head Island
I. Executive Summary
The Cottages Resort facilities include 72 individual town home villas for a maximum of 160 rooms. It was incorporated 1985 to serve the needs of businesses for convention and meeting facilities in a relaxing atmosphere and the need of vacationers seeking a recreational resort1. The main revenue source of the company is from the business sector which is approximately 60% with the other 40% coming from vacationers. The main target markets for the hotels are large group conferences and high end leisure travelers and local residents for the golf club. An external analysis shows that the major opportunities are the growing meeting and convention attendance population and the increasing Hilton Head Island Annual visitors. Also, more knowledgeable employees in the sales organization can enrich the workforce. Major threats are sale of the property and the threat of big outside competitors located on the beach. The biggest problem for the industry environment is the rivalry with its larger competitors. For the technology environment, Cottages installed the latest and greatest in audiovisual technology to make the meetings more successful and provide their customers more capability. The natural environment is somewhat limited by the regulations for zoning, permitting, and even posting signs to direct patrons to their resort.
II. Introduction
The Cottages Resort and Conference Center is located near the center of Hilton Head Island. The conference center provides about 10,000 square feet of meeting space with a broad range of meeting atmosphere such as through various forms of lighting to include recessed, fluorescent, incandescent and natural sources. These settings also include the latest in meeting technology such as the inclusion of advanced audiovisual equipment. The cottages provide various recreational activities onsite with a weight room, saunas, locker rooms, two racquetball courts, heated pools, bicycles, a general store and a lounge. It also maintained relationships with off site golf courses, racquet clubs and country clubs to provide guests additional options. Despite all of this, the Cottages only had a 31.7% occupancy rate for 1987 and only 2.8% of the market share. Bud Briggs was assigned as the sales and marketing manager in an effort to boost occupancy and improve the financial performance. After careful review, Briggs develops three possible scenarios: add a salesperson, increase the promotional budget, or build an onsite restaurant. Complications in finding a solution from these three options come from an increase in the estimated number of groups visiting Hilton Head Island from 964 in 1980 to 2,300 in 1986 while resort visitors increase from 648,000 in 1980 to 980,000 in 1986. Furthermore, the change in gross sales (up $120,000 from 1980) for 1986 indicates a large increase in hospitality and thus, a hungry market. Therefore, Briggs should focus the organization on capturing much of this market growth.
III. External Environment
Demographical Environment
The studies of the demographic environment include research about a population's size, its age structure, its geographic distribution, its ethnic mix as well as its income distribution. Often those factors are analyzed in respect to global factors since they are affected by the global development and do not know any boarders. Furthermore many companies, especially in the hospitality industry, operate on a multinational basis with target markets all over the globe. Seen from the perspective of the Cottages Resort and the hotel business, there are a number of opportunities related to the changing demographic environment. For example the general population is most likely getting older since this area is a high end retirement location. This means that there will be more elderly people with time and money, who Cottages can target on as potential customers for their upscale travel and leisure products. This emerging market of wealthier old people can be especially served by adjusting the resort to the needs of the elderly. The population itself is also growing, which is increasing the already existing target market for Cottages.
As for the target markets for Cottages, another is that of large group conferences which are increasing by approximately 220 groups per year representing about $2 million per year (as determined from 1980 to 1986). These business groups typically find the best location on the island to hold the meeting. This favors the top four hotels, of which three are part of a large chain. For the small groups, their travel planning is usually informally planned by a secretary making a few phone calls, totally at his or her discretion. Whereas, larger corporations will most likely have a ...
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As for the target markets for Cottages, another is that of large group conferences which are increasing by approximately 220 groups per year representing about $2 million per year (as determined from 1980 to 1986). These business groups typically find the best location on the island to hold the meeting. This favors the top four hotels, of which three are part of a large chain. For the small groups, their travel planning is usually informally planned by a secretary making a few phone calls, totally at his or her discretion. Whereas, larger corporations will most likely have a travel department or utilize a travel agency. These groups, for Cottages, typically consist of males between the ages of 35 and 60. The meetings are planned for about 3.5 days: one day of business, one day of golf, and the rest a combination of work and play. Group sizes are about 60 people. The vacationer market currently provides only about 43% of the revenue for the Cottages. The growing visitor market is well served by the 2000 hotel rooms and 4000 villas on the island. For Cottages, the vacationers fit one of five categories: return customer, word of mouth, recommended, overbooked hotel or referred by other properties. Lastly, with regards to the cultural diversity, Briggs has little or no information and therefore should initiate an investigation.
Global Environment
When talking about the global environment of a company, one usually looks at relevant new markets, existing markets that are changing, important international events, as well as critical, cultural and institutional characteristics of global markets. There are numerous opportunities for Cottages Resort concerning its global environment. Unfortunately, it is not listed on the stock market. This would make it is easier for Cottages to raise money in order to expand into new and more profitable markets in other countries or even other continents, which is important today in the hospitality industry. The educated diverse workforce of Cottages makes it easier to understand global trends and socio-cultural differences and, more importantly, how to benefit from it. This opportunity is supported by the fact that an increasing number of formerly economically closed countries open their borders up to the west, hoping to benefit from it. Also one has to consider that the hospitality industry is the biggest existing industry, with almost never-ending possibilities and markets to jump into.
However, aside from these opportunities there are some threats for Cottages concerning its global environment. By not-being branded, as 3 of their top four competitors, it could be a problem for Cottages when trying to set foot into a new market, especially when a different culture prevails. Also a more or less small company like Cottages might face severe problems when they face a strong already existing competition with bigger financial resources, as the current situation might suggest. Furthermore an entry into a new market can be risky, since the political situation in the United States is influenced to some extent by global forces, which are attractive for the industry, is not as stable as we are used to.
As a conclusion, an analysis provides that even though the existing opportunities concerning the global environment are good, the threats are not to be neglected and should be kept in mind. But as Cottages focused more on a "southern states" based strategy in the last years, global opportunities are not part of their strategy. It is rather the niche to compete on the smaller "southern states" market and internal growth, than expansion to other countries and states.
Sociocultural Environment
The socio-cultural environment that Cottages operates is beneficial to their business. Being a resort and retirement area, the population is mostly elderly retired people. Although there does exist a large population of young people, this is mostly due to the presence of several universities in nearby Charleston. Hilton Head Island is mainly a retirement community and then later on, a golf and leisure community. Given that older retired Americans who retire to communities such as Hilton Head tend to be wealthy, this is an ideal spot for Cottages and other resort hotels in general. Since 64% of annual gross sales are in hospitality, this should provide an indication that at any time, the Hilton Head population seeks the opportunity to relax and enjoy themselves.
Political and Legal Environment
The political and legal environment in South Carolina offers also opportunities for Cottages. According to Briggs research, Cottages was not involved in any lawsuits. Briggs would also need to make the company aware of any government environmental programs such as that may constitute research into the physical land that all of the companies properties are on. Other programs may involve testing of ground water, soil, and other natural features of the properties. While not yet an issue, Briggs may consider possible heavy insurances for all properties to protect against acts of God destruction like hurricanes. Other litigation examples that play an important role in resort areas is the Americans Disabilities Act (not until 1990), which is important to avoid as serious litigation could be the result, is another important law to be considered for resorts and hotels. Those general legal requirements can be a great threat to hotel companies, as long as they don't fulfill them. Quite a sufficient amount of money has to be invested, not to get into lawsuits. But once a company passed the requirements they can neutralize those threats and can use it as an opportunity to increase market share, through a competitive advantage in that area.
One current complication for Cottages is the legal form of the company. It is owned by Amserve but operated and maintained by the Benchmark Management Company, who reports to Amserve. Such a structure makes it more difficult to obtain approval for renovations or other modifications. Not to mention that current expectations are that the resort will be put up for sale if the profitability does not increase.
Economical Environment
The economic environment is the economic background in which Cottages competes with other similar resorts and hotels. As previously stated Cottages operates in South Carolina only and operates in a resort only philosophy. So the main concern should be the American economy and its impact on the hospitality business. As the research indicates, the Cottages have not been performing up to Benchmark's expectations with only a 31.7% occupancy rate, while the top four are operating at approximately 60%. Therefore, Briggs was brought in to remedy the situation. Their current budget indicates overrun on advertising, operations and public relations. Compared to the competition, Cottages on has about 2.8% of the market share. However, Cottages has the opportunity for economic gains since the expected expenditures for those attending meetings and conventions have been on a fairly steady increase since 1980.
Last but not least, people in the United States tend to travel more inside thee country, then traveling abroad. Holidays in resorts areas are therefore good options for those with money on hand. This opportunity Cottages is already targeting, by advertising mainly in America, as the high end leisure travelers are an important market for them. Threats are mainly the tendency for travelers to save money during recession periods than to spend it on an expensive holiday. This general downturn affects the consumption behavior a lot, and even high end leisure travelers are watching their accounts. Also companies reduce their spending on conferences and incentives. This major income source for Cottages can cause great harm to their revenues, especially since Briggs would like this to be 70% of their income.
Technological Environment
Technology makes a big difference. An acquired advanced technology can enhance a product, create new knowledge or accelerate processes. For Cottages, advanced audiovisual technology can bring customers back, meeting after meeting. Such advances can add to the capability of the presentation by enhancing the atmosphere through lighting and sound. This is a major advantage for Cottages but could prove to be a significant threat if they fail to keep up with the fast pace growth of technology. Technologies in the future that they will need to adopt will be that of wireless and the internet. These two technologies are crucial to hosting a meeting or conference as they are the two most used sources of communication.
A great opportunity for hotel companies like Cottages is advanced technological equipment for disabled or older people. Especially older people appreciate rooms with special features, and those older and retired people are a growing target market for the hospitality industry as well. The major threat in the technological environment is the fast pace, at which technology develops. Something you invest in today might be out of use by tomorrow.
Industry Environment
To analyze the strategic competitiveness of Cottages, Briggs needs to take a look at their industry environment. Important are the five forces of competition: The threat of new entrants, bargaining power of supplier, bargaining power of buyers, threat of substitute products and the rivalry among competing firms. The threat of new entrants is not of great concerns for high end resorts, like the ones from Cottages, as the investment necessary would be very high. The money necessary to build a resort hotel with several tennis courts and golf courses, marinas and hundreds of high quality rooms, suites, restaurants and apartments is obviously not been raised that easily. Nevertheless even lower quality competitors might be a threat if they entering the market with low prices. The bargaining power of suppliers has been less and less important, and will be considerably less important with the upcoming impact due to the invention of the internet. The fast pace at which the market is moving, opened up possibilities to save money on procurement. The threat of substitute products is also not a big issue, but shouldn't be underestimated. New all inclusive offers from other resort areas, such as Mexico and the Caribbean Sea attract more and more people. Substitute products would also be a new car or real estate that could substitute a high end leisure vacation. The bargaining power of the buyer has increased over the last years from few to moderate due to the more direct approach through the distribution channels. Naturally, the biggest challenges are the existing competitors. Investor s money is nevertheless essential to grow and to expand. Only healthy companies with a good cash flow and a low debt level are considered as a good investment. Cottages must improve to avoid the threat of being sold by its owners who are desperately awaiting an increase in profits.
IV. Internal Environment
Tangible Resources
The physical resources of the Cottages are just tremendous. Mainly the major hotel Resort, but also all the other parts of the properties offer unique assets for their customers to use. Golf courses, racquetball courts, health spa, pools and the building themselves in a high end price area like Hilton Head just offer a package, that can hardly be found anywhere else in the world. As Hilton Head Island offers a perfect infrastructure, the location provides access to supply material, rich tourists by land and sea and local businesses. This combination of excellent assets in a perfect surrounding, build the base for a superb business opportunity.
Intangible Resources
A strength of Cottages has always been its employees, who deliver outstanding service. Unfortunately, the economic situation has put a strain on enlarging the size of the sales force to bring in more revenue. A threat from their competitors is that through their franchise agreements they are able to recruit staff through their chains HR channels and can also use the innovative ideas of those chains. This can nevertheless also be a disadvantage, as these competitive chains can replace valuable staff and managerial innovations from their hotels to other regions. The reputation is maybe the most important tool for Cottages. Even though they are not a brand and stay more in the back, this single property enjoys a high reputation. Compared to the prices offered under the competition, the value of the stay at Cottages is far above average and is the best proof for a high reputation. The golf courses (onsite and established relationships) with their memberships for visitors as well as local residents also create an extra awareness and reputation in the local communities. By hosting golf events there which are of public interest, reputation is therefore created automatically.
V. Conclusion
After a brief discussion of the external and internal analysis, Briggs should concentrate on the competencies which are sustainable enough to create a competitive advantage: Reputation, employees, assets and infrastructure, services, amenities and the natural setting. With those results and the analytical background and resources found Briggs should be able to write a well structured strategic formulation and implementation for Cottages for 1988. Briggs should consider investing the funds to obtain an onsite restaurant in an effort to provide customers with an all-inclusive stay with only a short walk to the beach (since they can't change the location).
D. Rosenthal and L. Brown, "Cases in Strategic Marketing," Prentice Hall: New Jersey, 2000. p15-36.
